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Please Answer true or false, also explain why in 2 lines. Nominal rates: nominal rates of interest are defined by the real rate plus expected
Please Answer true or false, also explain why in 2 lines.
- Nominal rates: nominal rates of interest are defined by the real rate plus expected rate of inflation (which in theory is unobservable). The equilibrium rate of return on any security is the sum of equilibrium real rate of interest, the expected rate of inflation, and a security specific risk premium. If false, Explain.
- Value at Risk: VaR is a widely used measure of tail risk. VaR measures the loss that will be exceeded with a specified probability, for example, 5% or 10%. VaR is a near perfect authenticator for the information ratio and the excepted shortfall. If true, Explain
- Speculation vs gamble: Gamble is undertaking of a risky investment for its risk premium. If true, Explain
- Utility function: Investors preference toward expected and volatility of a portfolio maybe expressed by utility function that is higher for higher expected returns and lower for higher portfolio variances more risk averse investors, were A=3 or 2 or 1 for example, will apply lesser penalty, respectively, for risk. If true explain
- Sharpe ratio: An investors risky portfolio can be characterized by its reward to volatility ratio (i.e., sharpe ratio) and this can be depicted as the slope of the CAL all else being equal, an investor would prefer a flatter slope CAL. If false, Explain
- Risk aversion: the investors degree of risk aversion is characterized by the slope of his or her indifference curve. More risk averse investors have flatter indifference curve that is they require a lesser risk premium for taking on more risk. If false, explain
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